TELUS reports strong results for second quarter 2017

Transcription

1 News Release August 11, 2017 TELUS reports strong results for second quarter 2017 Strong wireless loading with 99,000 high-quality postpaid net additions, up 62 per cent over last year Record wireless postpaid churn of 0.79 per cent combined with ARPU growth of 3.9 per cent yields industry-leading lifetime revenue of $6,700, up 19 per cent over last year 121,000 new postpaid wireless, Internet and TELUS TV customer additions, up 32 per cent over last year Consolidated revenue and EBITDA growth of 3.9 per cent and 3.6 per cent respectively, including leading wireline profit growth of 4.1 per cent Vancouver, B.C. TELUS Corporation s consolidated operating revenue increased 3.9 per cent to $3.3 billion in the second quarter of 2017, over the same period a year ago. This growth reflects higher wireless network and wireline data services revenue growth, which represents 85 per cent of consolidated revenue. Earnings before interest, income taxes, depreciation and amortization (EBITDA) 1 increased by 0.4 per cent to $1.2 billion, while Adjusted EBITDA was up 3.6 per cent as higher revenue growth, as well as ongoing execution of operational efficiency and effectiveness initiatives, offset increased costs to support higher wireless gross loading and retention volumes. TELUS reported strong second quarter results, including high-quality postpaid wireless loading, anchored by the TELUS team setting unprecedented industry benchmarks for customer loyalty and lifetime revenue, said Darren Entwistle, President and CEO. Importantly, we continued to deliver value-creating financial results in conjunction with strong customer loading, reflecting the company s operational discipline, the high quality attributes of our wireless and wireline asset base, and our team s relentless focus on our customers first promise. Mr. Entwistle added, Through consistent execution of our longstanding strategy, we continue to deliver on our capital allocation programs focused on delivering long-term value for our customers and investors. This includes investing in our broadband networks to deliver advanced capabilities to our customers for decades to come, while simultaneously building on our track record of providing investors with the industry s best multi-year dividend growth program, targeting annual dividend growth between seven and 10 per cent through to Notably, our track record of delivering on our industry-leading shareholder-friendly initiatives is highlighted by TELUS having now returned more than $14 billion to shareholders, including $9 billion in dividends, or $24 per share since Doug French, Executive Vice-President and CFO said, TELUS strong financial results and high-quality loading and retention are a reflection of our team s focus on operational excellence, financial discipline and driving cost efficiencies. These strong and consistent financials results are also built on the foundation of our entire team s longstanding commitment to a customers first focus, which underpins the confidence we have in our capital allocation initiatives, future growth priorities, and our ability to maintain a strong balance sheet during this period of elevated capital intensity. In wireless, network revenue increased by 7.2 per cent to $1.7 billion, reflecting higher ARPU as customers move to higher-rate plans, including Premium Plus, and increased data usage, continued postpaid subscriber growth, including subscribers acquired from Manitoba Telecom Services (MTS), and higher roaming revenues. In wireline, data services and equipment revenue increased by 5.6 per cent to $1.0 billion, reflecting increased Internet and enhanced data service revenues from continued high-speed Internet 1 of 50

2 subscriber growth and higher revenue per customer, growth in business process outsourcing revenues, higher TELUS Health revenues driven by organic growth through additional professional services and support revenue, and through acquisitions, and an increase in TELUS TV revenues from subscriber growth. In the quarter, TELUS attracted 121,000 new wireless postpaid, high-speed Internet and TV customers, up 29,000 over the same quarter a year ago. The higher net additions included 99,000 wireless postpaid customers, 17,000 high-speed Internet subscribers, and 5,000 TELUS TV customers. TELUS total wireless subscriber base of 8.7 million is up 3.2 per cent from a year ago, reflecting a 5.1 per cent increase in the postpaid subscriber base to 7.8 million. TELUS high-speed Internet connections have increased 5.3 per cent to 1.7 million, while TELUS TV subscribers are higher by 4.5 per cent to 1.1 million. TELUS consistent execution of putting customers first delivered a best-ever wireless monthly postpaid churn rate of 0.79 per cent, while blended churn was a record low 1.00 per cent. TELUS postpaid churn rate has now been below 1.00 per cent for 15 of the past 16 quarters. CONSOLIDATED FINANCIAL HIGHLIGHTS C$ and in millions, except per share amounts Three months ended June 30 Per cent (unaudited) change Operating revenues 3,273 3, Operating expenses before depreciation and amortization 2,079 1, EBITDA (1) 1,194 1, Adjusted EBITDA (1)(2) 1,230 1, Net income (7.2) Adjusted net income (3) (2.7) Net income attributable to common shares (8.9) Basic earnings per share (EPS) (8.6) Adjusted basic EPS (3) (2.9) Capital expenditures Free cash flow (4) Total subscriber connections (5) (1) (2) (3) (4) (5) EBITDA is a non-gaap measure and does not have any standardized meaning prescribed by IFRS-IASB. TELUS issues guidance on and reports EBITDA because it is a key measure used to evaluate performance. For further definition and explanation of this measure, see Section 11.1 in the accompanying 2017 second quarter Management s discussion and analysis. Adjusted EBITDA is defined in this news release as excluding 1) restructuring and other costs of $39 million and $23 million from the second quarter of 2017 and 2016 respectively; 2) a gain of $15 million from the exchange of wireless spectrum licences in the second quarter of 2016; and 3) net gains and equity income of $3 million and $9 million in the second quarter of 2017 and 2016 respectively, related to real estate joint venture developments. Adjusted net income and adjusted basic EPS are non-gaap measures and do not have any standardized meaning prescribed by IFRS-IASB. These terms are defined in this news release as excluding from net income attributable to common shares and basic EPS (after income taxes), 1) restructuring and other costs; 2) a gain from the exchange of wireless spectrum licences in the second quarter of 2016; 3) net gains and equity income in the second quarter of 2017 and 2016 related to real estate joint venture developments; and 4) favourable income tax-related adjustments in the second quarter of For further analysis of adjusted net income and adjusted basic EPS, see Section 1.3 in the accompanying 2017 second quarter Management s discussion and analysis. Free cash flow is a non-gaap measure and does not have any standardized meaning prescribed by IFRS-IASB. For further definition and explanation of this measure, see Section 11.1 in the accompanying 2017 second quarter Management s discussion and analysis. The sum of active wireless subscribers, residential network access lines (NALs), high-speed Internet access subscribers and TELUS TV subscribers (Optik TV and TELUS Satellite TV subscribers) measured at the end of the respective periods based on information in billing and other systems. In relation to an acquisition and a divestiture both undertaken during the first quarter of 2017, beginning of period residential NALs, high-speed Internet and TELUS TV subscriber balances have been increased by a net 1,000, 6,000 and 5,000 respectively. Effective April 1, 2017, postpaid subscribers, total subscribers and associated operating statistics (gross additions, net additions, ARPU and churn) have been adjusted to include an estimated migration of 85,000 MTS subscribers in the opening subscriber balances. Cumulative subscriber connections also include an April 1, 2017 adjustment to remove approximately 19,000 prepaid and 25,000 postpaid subscriptions from the respective subscriber bases, primarily due to our national CDMA network shutdown. 2 of 50

3 For the quarter, net income of $386 million and basic EPS of $0.64 decreased by 7.2 per cent and 8.6 per cent respectively, while adjusted net income and adjusted basic EPS decreased by 2.7 per cent and 2.9 per cent respectively. Free cash flow 4 of $260 million in the second quarter doubled from $126 million a year ago due primarily to lower cash taxes paid. This news release contains statements about financial and operating performance of TELUS (the Company) and future events that are forward looking, including with respect to the Company s 2017 annual targets and guidance and future dividend increases. By their nature, forward-looking statements require the Company to make assumptions and predictions and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from those expressed in the forward-looking statements. Accordingly, the forward-looking statements in this news release should be read together with the cautionary note in the accompanying 2017 second quarter Management s discussion and analysis. Forward-looking statements in this news release are made based on the assumptions (including assumptions regarding the 2017 annual targets and guidance, semi-annual dividend increases through 2019, and our ability or intention to sustain or complete any normal course issuer bid), and subject to the qualifications and risk factors referred to in the accompanying Management s discussion and analysis for the second quarter of 2017, in the 2016 annual Management s discussion and analysis, and in other TELUS public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com) and in the United States (on EDGAR at sec.gov). The forward-looking statements contained in this news release describe our expectations at the date of this news release and, accordingly, are subject to change after such date. Except as required by law, TELUS disclaims any intention or obligation to update or revise forward-looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance. Second Quarter 2017 Operating Highlights TELUS wireless Wireless network revenues increased by $117 million or 7.2 per cent year-over-year to $1.7 billion. This growth was driven by a larger proportion of higher-rate two-year plans in the revenue mix, including Premium Plus plans launched in June 2016, increased adoption of larger data buckets or topping up of data buckets, continued subscriber growth, including subscribers acquired from MTS, a more favourable postpaid subscriber mix, a higher smartphone mix, and higher roaming revenues. Blended ARPU was higher by 3.9 per cent to $ This represents TELUS twenty-seventh consecutive quarter of year-over-year growth and was driven by network revenue growth as described above. Monthly postpaid subscriber churn declined by 11 basis points year-over-year to a record low of 0.79 per cent. The improvement reflects our focus on executing customers first initiatives and retention programs. Blended monthly churn declined by 15 basis points to 1.00 per cent reflecting improvements in both postpaid and prepaid churn rates, as well as an increase in the mix of postpaid subscribers. Postpaid net additions of 99,000 were higher year-over-year by 38,000 due to higher gross additions, reflecting the success of targeted promotions and marketing efforts focused on higher-value postpaid and smartphone loading, cost-effective prepaid to postpaid migrations and lower churn. Prepaid subscribers decreased by 16,000 and reflect the focus on higher-value postpaid loading, increased competition for prepaid services, and conversions to postpaid services. EBITDA decreased by $10 million or 1.3 per cent reflecting non-recurring 2016 gains related to the exchange on wireless spectrum licences as well as higher restructure and other costs including those associated with the migration of subscribers acquired from MTS. Adjusted EBITDA increased by $26 million or 3.3 per cent over last year to $809 million, reflecting higher network revenue as well as ongoing operational efficiency and effectiveness initiatives. This growth was partly offset by higher equipment sales expense related to higher-value smartphones in the sales mix, increasing handset costs, higher postpaid gross additions and increased retention volumes, higher network operating expenses, and an increase in customer support and administrative expenses, including incremental costs related to the acquisition of MTS subscribers. 3 of 50

4 Wireless capital expenditures increased marginally by 0.4 per cent over the same period a year ago due to ongoing investments in TELUS fibre-optic network to support its small-cell technology strategy to improve coverage, capacity and back-haul while preparing for a more efficient and timely evolution to 5G. TELUS wireline External wireline revenues increased by $33 million or 2.2 per cent to $1.4 billion. This growth was generated primarily by higher data services revenue. Data services and equipment revenues increased by $55 million or 5.6 per cent, due to increased Internet and enhanced data revenues from continued high-speed Internet subscriber growth and higher revenue per customer, growth in business process outsourcing services, increased TELUS Health revenues driven by organic growth through additional professional services and support revenue, and through acquisitions, and higher TELUS TV revenues from continued subscriber growth and certain rate increases. High-speed Internet net additions of 17,000 were slightly lower by 1,000 over the same quarter a year ago. The continued growth reflected the ongoing expansion of TELUS high-speed broadband footprint, including fibre to the premises. Total TV net additions of 5,000 were lower by 8,000 over the same quarter a year ago, as a result of lower gross additions and satellite-tv subscriber losses due to slower subscriber growth for paid TV services reflecting a high rate of market penetration for TV services and heightened competitive intensity, including from over-the-top services. These factors were partly offset by the ongoing expansion of our addressable high-speed Internet and Optik TV footprint, connecting more homes and businesses directly to fibre and bundling of these services together. Residential network access lines (NALs) declined by 19,000 in the quarter, an improvement of 1,000 over the same quarter a year ago. Residential NAL losses continue to reflect the ongoing trend towards wireless and Internet substitution, as well as increased competition, partially mitigated by the success of TELUS bundled service offerings and our customers first initiatives. Wireline EBITDA increased by $15 million or 3.8 per cent while Adjusted EBITDA increased by $16 million or 4.1 per cent over last year to $421 million. This growth reflects ongoing growth in data service margins, including Internet, TELUS Health, TELUS TV, and business process outsourcing services, as well as execution on operating efficiency and effectiveness initiatives. Wireline capital expenditures increased 7.8 per cent over the same period a year ago due primarily to continued strategic investments in broadband network infrastructure, including connecting more homes and businesses directly to TELUS fibre-optic network. These investments support high-speed Internet and Optik TV subscriber growth, as well as TELUS growing customer demand for faster Internet speeds, and extend the reach and functionality of TELUS business and healthcare solutions. Dividend Declaration The TELUS Board of Directors has declared a quarterly dividend of $ Canadian per share on the issued and outstanding Common Shares of the Company payable on October 2, 2017 to holders of record at the close of business on September 8, This third quarter dividend represents a 7.1 per cent increase from the $0.46 quarterly dividend paid on October 3, Corporate Highlights TELUS makes significant contributions and investments in the communities where team members live, work and serve and to the Canadian economy on behalf of customers, shareholders and team members. These include: Paying, collecting and remitting a total of approximately $1,056 million in taxes in the first half of 2017 to federal, provincial and municipal governments in Canada consisting of corporate income taxes, sales taxes, property taxes, employer portion of payroll taxes and various regulatory fees. Since 2000, the Company has remitted approximately $22 billion in these taxes. Disbursing spectrum renewal fees of $50 million to Innovation, Science and Economic Development Canada in the first half of Since 2002, TELUS total tax and spectrum remittances to federal, provincial and municipal governments in Canada have totaled approximately $26 billion. Investing $1.5 billion in capital expenditures primarily in communities across Canada in the first half of 2017 and $34 billion since of 50

5 Spending $3.7 billion in total operating expenses in the first half of 2017, including goods and service purchased of $2.7 billion. Since 2000, TELUS has spent $103 billion and $68 billion respectively in these areas. Generating a total team member payroll of $1.3 billion in the first half of 2017, including payroll taxes of $91 million. Since 2000, total team member payroll totals $41 billion. Returning $860 million in dividends in the first seven months of 2017 to individual shareholders, mutual fund owners, pensioners and institutional investors. Since 2004, TELUS has returned $14.5 billion to shareholders through its dividend and share purchase programs, including $9.3 billion in dividends and $5.2 billion in share purchases, representing over $24 per share. About TELUS TELUS (TSX: T, NYSE: TU) is Canada s fastest-growing national telecommunications company, with $13 billion of annual revenue and 12.8 million subscriber connections, including 8.7 million wireless subscribers, 1.7 million high-speed Internet subscribers, 1.3 million residential network access lines and 1.1 million TELUS TV customers. TELUS provides a wide range of communications products and services, including wireless, data, Internet protocol (IP), voice, television, entertainment and video. TELUS is also Canada's largest healthcare IT provider, and TELUS International delivers business process solutions around the globe. In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed over $482 million to charitable and not-for-profit organizations and volunteered more than 7.7 million hours of service to local communities since Created in 2005 by President and CEO Darren Entwistle, TELUS 12 Canadian community boards and 5 International boards have led the Company s support of grassroots charities and have contributed more than $60 million in support of 5,595 local charitable projects, enriching the lives of more than 2 million children and youth, annually. TELUS was honoured to be named the most outstanding philanthropic corporation globally for 2010 by the Association of Fundraising Professionals, becoming the first Canadian company to receive this prestigious international recognition. For more information about TELUS, please visit telus.com. Media relations Richard Gilhooley (778) Richard.Gilhooley@telus.com Investor Relations: Paul Carpino (647) ir@telus.com Access to Quarterly results information Interested investors, the media and others may review this quarterly earnings news release, management s discussion and analysis, quarterly results slides, audio and transcript of the investor webcast call, supplementary financial information, and our full 2016 annual report at telus.com/investors. TELUS second quarter 2017 conference call is scheduled for Friday, August 11, 2017 at 11:00am ET (8:00am PT) and will feature a presentation followed by a question and answer period with investment analysts. Interested parties can access the webcast at telus.com/investors. A telephone playback will be available on August 11 until September 15, 2017 at Please use reference number # and access code 77377#. An archive of the webcast will also be available at telus.com/investors and a transcript will be posted on the website within a few business days. 5 of 50

6 TELUS CORPORATION Management s discussion and analysis 2017 Q2 6 of 50

7 Caution regarding forward-looking statements This document contains forward-looking statements about expected events and the financial and operating performance of TELUS Corporation. The terms TELUS, the Company, we, us and our refer to TELUS Corporation and, where the context of the narrative permits or requires, its subsidiaries. Forward-looking statements include any statements that do not refer to historical facts. They include, but are not limited to, statements relating to our objectives and our strategies to achieve those objectives, our targets, outlook, updates, our multi-year dividend growth program, and our multi-year share purchase program. Forward-looking statements are typically identified by the words assumption, goal, guidance, objective, outlook, strategy, target and other similar expressions, or future or conditional verbs such as aim, anticipate, believe, could, expect, intend, may, plan, predict, seek, should, strive and will. By their nature, forward-looking statements are subject to inherent risks and uncertainties and are based on assumptions, including assumptions about future economic conditions and courses of action. These assumptions may ultimately prove to have been inaccurate and, as a result, our actual results or events may differ materially from our expectations expressed in or implied by the forward-looking statements. An update to our assumptions for 2017 is presented in Section 9 Update to assumptions in this Management s discussion and analysis (MD&A). Risks and uncertainties that could cause actual performance or events to differ materially from the forward-looking statements made herein and in other TELUS filings include, but are not limited to, the following: Competition including: our ability to continue to retain customers through an enhanced customer service experience, including through the deployment and operation of new wireless networks; the ability of industry competitors to successfully launch their respective platforms and to combine a mix of residential local voice over Internet protocol (VoIP), long distance, high-speed Internet access (HSIA) and, in some cases, wireless services under one bundled and/or discounted monthly rate, along with their existing broadcast or satellite-based TV services; the success of new products, new services and supporting systems, such as Internet of Things (IoT) services for Internet-connected devices; continued intense rivalry across all services among wireless and wireline telecommunications companies including new or rebranded entrants, cable-tv providers, other communications companies and over-the-top (OTT) services, which, among other things, places pressures on average revenue per subscriber unit per month (ARPU), cost of acquisition, cost of retention and churn for all services, as do customer usage patterns, flat-rate pricing trends for voice and data, inclusive rate plans for voice and data and availability of Wi-Fi networks for data; mergers and acquisitions of industry competitors; pressures on high-speed Internet and TV ARPU and churn resulting from market conditions, government actions and customer usage patterns; residential and business network access line (NAL) losses; subscriber additions and retention volumes, and associated costs for wireless, TV and high-speed Internet services; and our ability to obtain and offer content on a timely basis across multiple devices on wireless and TV platforms at a reasonable cost. Technological substitution including: reduced utilization and increased commoditization of traditional wireline voice local and long distance services from impacts of OTT applications and wireless substitution, a declining overall market for paid TV services; the increasing number of households that have only wireless and/or Internet-based telephone services; potential wireless ARPU declines as a result of, among other factors, substitution to messaging and OTT applications; substitution to increasingly available Wi-Fi services from wireless services; and disruptive technologies such as OTT IP services that may displace our services. Technology including: subscriber demand for data that may challenge wireless networks and spectrum capacity levels in the future; our reliance on information technology and our need to streamline our legacy systems; technology options, evolution paths and roll-out plans for wireless and wireline networks (including broadband initiatives, such as fibre to the premises (FTTP), wireless small-cell deployment, 5G wireless and availability of resources and ability to build out adequate broadband capacity); our reliance on wireless network access agreements, which have facilitated our deployment of wireless technologies; choice of suppliers and those suppliers ability to maintain and service their product lines, which could affect the success of upgrades to and evolution of technology that we offer (such as TELUS TV, including Optik TV and TELUS Satellite TV ); supplier concentration and market power for network equipment, TELUS TV and wireless handsets; the performance of wireless technology; our expected long-term need to acquire additional spectrum capacity through future spectrum auctions and from third parties to address increasing demand for data; deployment and operation of new wireline broadband networks at a reasonable cost and availability and success of new products and services to be rolled out on such networks; network reliability and change management; and uncertainties around our strategy to replace certain legacy wireline networks, systems and services to reduce operating costs. Capital expenditure levels and potential outlays for spectrum licences in spectrum auctions or from third parties, due to: our broadband initiatives, including connecting more homes and businesses directly to fibre; our ongoing deployment of newer wireless technologies, including wireless small cells to improve coverage and prepare for a more efficient and timely evolution to 5G wireless services; utilizing acquired spectrum; investments in network resiliency and reliability; subscriber demand for data; evolving systems and business processes; implementing efficiency initiatives; supporting large complex deals; and future wireless spectrum auctions held by Innovation, Science and Economic Development Canada (ISED). Our capital expenditure levels could be impacted if we do not achieve our targeted operational and financial results. 7 of 50

8 Regulatory decisions and developments including: the potential of government intervention to further increase wireless competition; the CRTC wireless wholesale services review, in which it was determined that the CRTC will regulate wholesale GSM-based domestic roaming rates and the setting of such rates charged to wireless service providers (WSPs); the Governor in Council s request to the CRTC to reconsider whether Wi-Fi networks could count as a home network for WSPs seeking mandated roaming; future spectrum auctions (including limitations on established wireless providers, spectrum set-aside that favours certain carriers and other advantages provided to new and foreign participants, and the amount and cost of spectrum acquired); restrictions on the purchase, sale and transfer of spectrum licences; the undetermined long-term impact of the CRTC s wireline wholesale services review; disputes with certain municipalities regarding rights-of-way bylaws; the potential impacts from the CRTC s decision to require pro-rated refunds when customers terminate their services; the CRTC s examination of the competitor quality of service regime; the CRTC s examination of the regulatory framework for message relay service; the CRTC s proposed phase-out of the local service subsidy regime and corresponding establishment of a broadband funding regime to support the enhancement of high-speed Internet services focusing on underserved areas in Canada; the impact from the review of Canada s cultural policies by the Minister of Canadian Heritage; vertical integration in the broadcasting industry resulting in competitors owning broadcast content services and timely and effective enforcement of related regulatory safeguards; the federal government s stated intention to review the Broadcasting Act and Telecommunications Act as announced in the March 22, 2017 federal budget; the North American Free Trade Agreement renegotiation; and restrictions on non-canadian ownership of TELUS Common Shares and the ongoing monitoring and compliance with such restrictions. Human resource matters including: recruitment, retention and appropriate training in a highly competitive industry, and the level of employee engagement. Process and business combination risks including: our reliance on legacy systems and ability to implement and support new products and services and business operations; our ability to implement effective change management for system replacements and upgrades, process redesigns and business integrations (such as our ability to successfully integrate acquisitions, complete divestitures or establish partnerships in a timely manner, and realize expected strategic benefits including following compliance with any regulatory orders), the risk that Manitoba Telecom Services Inc. s postpaid wireless customers and dealers acquired by us from BCE Inc. may not be successfully migrated; the implementation of complex large enterprise deals that may be adversely impacted by available resources, system limitations and degree of co-operation from other service providers; our ability to successfully manage operations in foreign jurisdictions; information security and privacy breaches, including data loss or theft of data; intentional threats to our infrastructure and business operations; and real estate joint venture re-development risks. Ability to successfully implement cost reduction initiatives and realize planned savings, net of restructuring and other costs, without losing customer service focus or negatively affecting business operations. Examples of these initiatives are: our operating efficiency and effectiveness program to drive improvements in earnings before interest, income taxes, depreciation and amortization (EBITDA), including the expected benefits of the immediately vesting transformative compensation initiative; business integrations; business product simplification; business process outsourcing; offshoring and reorganizations, including any full-time equivalent (FTE) employee reduction programs; procurement initiatives; and real estate rationalization. Additional revenue and cost efficiency and effectiveness initiatives will continue to be assessed and implemented, as required. Financing and debt requirements including our ability to carry out financing activities and our ability to maintain investment grade credit ratings in the range of BBB+ or the equivalent. Ability to sustain our dividend growth program through This program may be affected by factors such as the competitive environment, economic performance in Canada, our earnings and free cash flow, our levels of capital expenditures and spectrum licence purchases, acquisitions, the management of our capital structure, and regulatory decisions and developments. Quarterly dividend decisions are subject to assessment and determination by our Board of Directors (Board) based on the Company s financial position and outlook. Shares may be purchased under our normal course issuer bid when and if we consider it opportunistic, based on the Company s financial position and outlook, and the market price of TELUS shares. There can be no assurance that our dividend growth program or any normal course issuer bid will be maintained, not changed and/or completed through Taxation matters including: interpretation of complex domestic and foreign tax laws by the tax authorities that may differ from our interpretations; including the timing of income and deductions such as tax depreciation and operating expenses; changes in tax laws, including tax rates; tax expenses being materially different than anticipated including the taxability of income and deductibility of tax attributes; elimination of income tax deferrals through the use of different tax year-ends for operating partnerships and corporate partners; and tax authorities adopting more aggressive auditing practices for example, tax reassessments or adverse court decisions impacting the tax payable by us. Litigation and legal matters including: our ability to successfully respond to investigations and regulatory proceedings and defend against claims and lawsuits, including intellectual property infringement claims and class actions pending against us, as well as possible proceedings, intellectual property infringement claims and class actions based on consumer claims, data, privacy or security breaches and secondary market liability; and the complexity of legal compliance in domestic and foreign jurisdictions. Health, safety and the environment, including lost employee work time resulting from illness or injury, public concerns related to radio frequency emissions, environmental issues affecting our business including climate change, waste and waste recycling, risks relating to fuel systems on our properties, and changing government and public expectations regarding environmental matters and our responses. Business continuity events including: our ability to maintain customer service and operate our networks in the event of human error or human-caused threats, such as cyber attacks and equipment failures that could cause various degrees of network outages; supply chain disruptions; natural disaster threats; epidemics; pandemics; and the completeness and effectiveness of business continuity and disaster recovery plans and responses. 8 of 50

9 Economic growth and fluctuations including: the state of the economy in Canada, which may be influenced by economic and other developments outside of Canada including potential outcomes of yet unknown policies and actions of foreign governments; future interest rates; inflation; unemployment levels; effects of low oil prices; effects of low business spending (such as reducing investments and cost structure); pension investment returns, funding and discount rates; and Canadian/U.S. dollar exchange rates. These risks are described in additional detail in Section 9 General trends, outlook and assumptions and Section 10 Risks and risk management in our 2016 annual MD&A. Those descriptions are incorporated by reference in this cautionary statement but are not intended to be a complete list of the risks that could affect the Company. Many of these factors are beyond our control or our current expectations or knowledge. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our financial position, financial performance, cash flows, business or reputation. Except as otherwise indicated in this document, the forward-looking statements made herein do not reflect the potential impact of any non-recurring or special items or any mergers, acquisitions, dispositions or other business combinations or transactions that may be announced or that may occur after the date of this document. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements in this document describe our expectations and are based on our assumptions as at the date of this document and are subject to change after this date. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements. This cautionary statement qualifies all of the forward-looking statements in this document. 9 of 50

10 Management s discussion and analysis August 11, 2017 Contents Section Description 1. Introduction 1.1 Preparation of the MD&A 1.2 The environment in which we operate 1.3 Consolidated highlights 2. Core business and strategy 3. Corporate priorities for Capabilities 4.1 Principal markets addressed and competition 4.2 Operational resources 4.3 Liquidity and capital resources 4.4 Changes in internal control over financial reporting 5. Discussion of operations 5.1 General 5.2 Summary of consolidated quarterly results and trends 5.3 Consolidated operations 5.4 Wireless segment 5.5 Wireline segment 6. Changes in financial position 7. Liquidity and capital resources 7.1 Overview 7.2 Cash provided by operating activities 7.3 Cash used by investing activities 7.4 Cash provided (used) by financing activities 7.5 Liquidity and capital resource measures 7.6 Credit facilities 7.7 Sale of trade receivables 7.8 Credit ratings 7.9 Financial instruments, commitments and contingent liabilities 7.10 Outstanding share information 7.11 Transactions between related parties 8. Accounting matters 8.1 Critical accounting estimates 8.2 Accounting policy developments 9. Update to assumptions 9.1 Telecommunications industry regulatory developments and proceedings 10. Risks and risk management 11. Definitions and reconciliations 11.1 Non-GAAP and other financial measures 11.2 Operating indicators 10 of 50

11 1. Introduction The forward-looking statements in this section, including estimates regarding economic growth, are qualified by the Caution regarding forward-looking statements at the beginning of this Management s discussion and analysis (MD&A). 1.1 Preparation of the MD&A The following sections are a discussion of the consolidated financial position and financial performance of TELUS for the three-month and six-month periods ended June 30, 2017, and should be read together with TELUS June 30, 2017, unaudited condensed interim consolidated financial statements (subsequently referred to as the interim consolidated financial statements). The generally accepted accounting principles (GAAP) we use are the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Our interim consolidated financial statements comply with IFRS-IASB and Canadian GAAP and have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Our use of the term IFRS in this MD&A is a reference to these standards. In our discussion, we also use certain non-gaap financial measures to evaluate our performance, monitor compliance with debt covenants and manage our capital structure. These measures are defined, qualified and reconciled with their nearest GAAP measures in Section All currency amounts are in Canadian dollars, unless otherwise specified. Additional information relating to the Company, including our annual information form and other filings with securities commissions or similar regulatory authorities in Canada, is available on SEDAR (sedar.com). Our filings with the Securities and Exchange Commission in the United States, including Form 40-F, are available on EDGAR (sec.gov). Our disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management on a timely basis, so that appropriate decisions can be made regarding public disclosure. This MD&A and the interim consolidated financial statements were reviewed by our Audit Committee and approved by our Board of Directors (Board) for issuance on August 11, In this MD&A, unless otherwise indicated, results for the second quarter of 2017 (three-month period ended June 30, 2017) and the six-month period ended June 30, 2017, are compared with results from the second quarter of 2016 (threemonth period ended June 30, 2016) and six-month period ended June 30, The environment in which we operate The success of our business and the challenges we face can best be understood with reference to the environment in which we operate, including broader economic factors that affect our customers and us, and our competitive industry. Our estimates regarding our environment also form an important part of the assumptions on which our targets are based. Economic growth We currently estimate that the annual rate of economic growth in Canada in 2017 will be 2.2%, as updated in our first quarter 2017 MD&A, based on a composite of estimates from Canadian banks and other sources. For our incumbent local exchange carrier (ILEC) provinces in Western Canada, we currently estimate that annual rates of economic growth in British Columbia (B.C.) will be 2.3% in 2017 and in Alberta, as updated in our first quarter 2017 MD&A, will be 2.4% in The Bank of Canada s July 2017 Monetary Policy Report estimated annual economic growth in Canada will be 2.8% in The competitive and dynamic environment in which we operate will affect how both the magnitude and timing of economic growth will impact us. In respect of the national unemployment rate, Statistics Canada s Labour Force Survey reported a rate of 6.5% for June 2017 (6.9% for December 2016 and 6.8% for June 2016). The unemployment rate for B.C. was 5.1% for June 2017 (5.8% for December 2016 and 5.9% for June 2016), while the unemployment rate for Alberta was 7.4% for June 2017 (8.5% in December 2016 and 7.9% for June 2016). 1.3 Consolidated highlights Changes to the Board of Directors At TELUS 2017 annual general meeting held on May 11, 2017, two new nominees, Kathy Kinloch and Claude Mongeau, were elected to the Board. Kathy has served as the President of the British Columbia Institute of Technology (BCIT) since January From 2010 to 2013, she was President of Vancouver Community College, and from 2007 to 2010, she served as Dean of Health Sciences at BCIT. Claude served as President and Chief Executive Officer of Canadian National Railway Company from 2010 to He also served as Executive Vice-President and Chief Financial Officer from 2000 to 2009, and Senior Vice-President and Chief Financial Officer from 1999 to Micheline Bouchard, an independent director who had served as a TELUS director since 2004, retired from our Board on May 11, of 50

12 Agreement with BCE Inc. regarding Manitoba Telecom Services Inc. On April 1, 2017, we acquired approximately one-quarter of Manitoba Telecom Services Inc. s (MTS) postpaid wireless subscribers, certain network assets and rights to 15 retail locations in Manitoba. Pursuant to this acquisition, in the second quarter of 2017, we commenced the migration of postpaid wireless subscribers to TELUS. The final price of the transactions with BCE Inc. will vary depending upon the actual number of qualifying postpaid wireless subscribers acquired; such final determination will happen by March 31, Kroll Computer Systems Inc. In May 2017, we acquired Kroll Computer Systems Inc. (Kroll), the primary reason for which is to enhance our geographic reach and quality of our product offering as a national pharmacy management services provider. The total purchase price was approximately $250 million, of which $100 million was paid by issuance of approximately two million TELUS Common Shares. 12 of 50

13 Consolidated highlights Second quarters ended June 30 Six-month periods ended June 30 ($ millions, unless otherwise noted) Change Change Consolidated statements of income Operating revenues 3,273 3, % 6,471 6, % Operating income (3.2)% 1,397 1, % Income before income taxes (5.4)% 1,117 1, % Net income (7.2)% % Net income attributable to Common Shares (8.9)% % Earnings per share (EPS) ($) Basic EPS (8.6)% % Adjusted basic EPS (2.9)% % Diluted EPS (8.6)% % Dividends declared per Common Share ($) % % Basic weighted-average Common Shares outstanding (millions) (0.1)% (0.3)% Consolidated statements of cash flows Cash provided by operating activities 1, % 1,835 1, % Cash used by investing activities (1,221) (735) 66.1 % (2,043) (1,395) 46.5 % Capital expenditures 2 (810) (769) 5.3 % (1,534) (1,387) 10.6 % Cash provided (used) by financing activities (328) (207) 58.5 % % Other highlights Subscriber connections 3 (thousands) 12,810 12, % EBITDA (earnings before interest, income taxes, depreciation and amortization) 1 1,194 1, % 2,455 2, % Restructuring and other costs % (39.4)% Adjusted EBITDA 4 1,230 1, % 2,495 2, % Adjusted EBITDA margin 5 (%) (0.4) pts pts. Free cash flow % % Net debt to EBITDA excluding restructuring and other costs 1 (times) Notations used in MD&A: n/m not meaningful; pts. percentage points. 1 Non-GAAP and other financial measures. See Section Capital expenditures include assets purchased, but not yet paid for, and consequently differ from Cash payments for capital assets, excluding spectrum licences, as reported on the condensed interim consolidated statements of cash flows. 3 The sum of active wireless subscribers, residential network access lines (NALs), high-speed Internet access subscribers and TELUS TV subscribers (Optik TV and TELUS Satellite TV subscribers), measured at the end of the respective periods based on information in billing and other systems. In relation to an acquisition and a divestiture both undertaken during the first quarter of 2017, beginning of period residential NALs, high-speed Internet and TELUS TV subscriber balances have been increased by a net 1,000, 6,000 and 5,000, respectively and are not included in subscriber connection net additions metrics in Section 5.5. Effective April 1, 2017, postpaid subscribers, total subscribers and associated operating statistics (gross additions, net additions, average revenue per subscriber unit per month (ARPU) and churn) have been adjusted to include an estimated migration of 85,000 MTS subscribers in the opening subscriber balances. Cumulative subscriber connections also include an April 1, 2017 adjustment to remove approximately 19,000 prepaid and 25,000 postpaid subscriptions from the respective subscriber bases, primarily due to our national CDMA network shutdown. 4 Adjusted EBITDA for all periods excludes restructuring and other costs (See Section 11.1 for restructuring and other cost amounts). Adjusted EBITDA for the second quarter and first six months of 2016 excludes: (i) a $15 million gain in the second quarter of 2016, from the exchange of wireless spectrum licences; and (ii) net gains and equity income of $3 million in the second quarter of 2017 and $9 million in the second quarter of 2016, related to real estate joint venture developments. 5 Adjusted EBITDA margin is Adjusted EBITDA divided by Operating revenues, where the calculation of the Operating revenues excludes the net gains and equity income related to real estate joint venture developments, as well as the gain from exchange of wireless spectrum licences in the second quarter of Operating highlights Consolidated operating revenues increased by $125 million in the second quarter of 2017 and $215 million in the first six months of 2017: Service revenues increased by $139 million in the second quarter of 2017 and $242 million in the first six months of 2017, mainly due to growth in wireless network revenue and wireline data services revenue, partly offset by the ongoing decline in legacy wireline voice revenue. Equipment revenues increased by $4 million in the second quarter of In the first six months of 2017, equipment revenues decreased by $10 million, reflecting a combination of higher wireless per-unit subsidies and lower wireless retention volumes combined with wireless competitive intensity. 13 of 50

14 Other operating income decreased by $18 million in the second quarter of 2017 and $17 million in the first six months of 2017 largely due to lower net gains in the current period than in the comparable period. These changes include lower net gains and equity income related to real estate joint venture developments in addition to nonrecurring 2016 gains related to the exchange on wireless spectrum licences and from the sale of property, plant and equipment, partly offset by the non-recurrence of a 2016 provision related to written put options in respect of noncontrolling interests. For additional details on operating revenues, see Section 5.4 Wireless segment and Section 5.5 Wireline segment. During the 12-month period ending on June 30, 2017, our total subscriber connections increased by 316,000, reflecting a 5.1% increase in wireless postpaid subscribers, a 4.5% increase in TELUS TV subscribers and a 5.3% increase in high-speed Internet subscribers, partly offset by an 9.9% decline in wireless prepaid subscribers and a 6.3% decline in wireline residential NALs. Our postpaid wireless subscriber net additions were 99,000 in the second quarter of 2017 and 143,000 in the first six months of 2017, up 38,000 and 74,000, respectively, from the same periods in 2016, as higher gross additions due to the success of our promotions including our focus on higher-value loading and prepaid migrations were partly offset by competitive intensity. Our monthly postpaid subscriber churn rate was a record 0.79% in the second quarter of 2017 and 0.86% in the first six months of 2017, as compared to 0.90% in the second quarter of 2016 and 0.93% in the first six months of (See Section 5.4 Wireless segment for additional details.) Net additions of high-speed Internet subscribers were 17,000 in the second quarter of 2017 and 41,000 in the first six months of 2017, down 1,000 in the quarter and up 11,000 in the six-month period. The increase in the first six months resulted from the continued expansion of our high-speed broadband footprint, including fibre to the premises (FTTP) and the success of recently launched innovative product offerings. Net additions of TELUS TV subscribers were 5,000 in the second quarter of 2017 and 12,000 in the first six months of 2017, down 8,000 in the quarter and 12,000 in the six-month period. The decreases reflect lower gross additions and a decline in satellite-tv subscribers due to a declining overall market for paid TV services resulting from a high rate of market penetration and the effects of heightened competitive intensity, including from over-the-top (OTT) services. These pressures were partly offset by the continued focus on expanding our addressable high-speed Internet and Optik TV footprint, connecting more homes and business directly to fibre, and bundling these services together. This contributed to overall combined Internet and TV subscriber growth of 132,000 or 5.0% over the last 12 months. (See Section 5.5 Wireline segment for additional details.) Operating income decreased by $22 million in the second quarter of 2017, reflecting increased EBITDA fully offset by increased depreciation and amortization expenses resulting from higher expenditures associated with both our capital asset base and intangible asset base, including acquisitions, and the impact of our continuing program of asset life studies. Operating income increased by $67 million in the first six months of 2017, reflecting growth in EBITDA, partially offset by increases in total depreciation and amortization expenses. EBITDA includes restructuring and other costs, and net gains and equity income related to real estate joint venture developments recorded in the second quarters of 2017 and EBITDA also includes a gain from the exchange of wireless spectrum licences recorded in the second quarter of EBITDA increased by $5 million in the second quarter of 2017, reflecting growth in wireless network revenues and increased wireline data revenues, partially offset by increased costs associated with higher wireless gross loading and retention volumes, increased restructuring and other costs including those associated with the migration of subscribers acquired from MTS, and increased employee benefits expense. EBITDA increased by $126 million in the first six months of 2017 due to growth in wireless network revenues, increased wireline data revenues, and lower restructuring and other costs, partly offset by continued declines in legacy voice services. Adjusted EBITDA excludes restructuring and other costs and excludes net gains and equity income related to real estate joint venture developments recorded in the second quarters of 2017 and 2016 in addition to the exclusion of a gain from the exchange of wireless spectrum licences recorded in the second quarter of Adjusted EBITDA increased by $42 million or 3.6% in the second quarter of 2017, and increased by $119 million or 5.0% in the first six months of (See Section 5.4 Wireless segment and Section 5.5 Wireline segment for additional details.) Income before income taxes decreased by $30 million in the second quarter of 2017, driven by lower Operating income as noted above and an increase in Financing costs. Income before income taxes increased by $44 million in the first six months of 2017, reflecting higher Operating income as noted above, partly offset by an increase in Financing costs. The increase in Financing costs resulted from lower capitalized long-term debt interest costs for spectrum licences that are now being deployed and higher average long-term debt outstanding. These were partly offset by foreign exchange gains. (See Financing costs in Section 5.3.) 14 of 50